Kernel panic after restoring with Time Machine backup

I made a full system Time Machine backup. I then did a clean reinstall of Snow Leopard. I couldn't use the Setup Assistant from Time Machine because the OS from the disk hadn't been updated. So I downloaded and installed the complete OS X update from System Update. I then booted from the CD again and chose the option to restore from a Time Machine backup. I did that, all went well, was prompted to restart, then an error occurred:

---------------------------------------------------------------------
panic(cpu 0 caller 0x47f5ad): " Process 1 exec of /sbin/launchd failed, errno 8\n"@SourceCache/xnu/xnu-1504.15.3/bsd/kern/kern_exec.c:3145
Debugger called: <panic>
Backtrace (CPU 0), Frame : Return Address (4 potential args on stack)
(Then 7 separate lines with a bunch of numbers & letters, not sure how important they are but I'll type them up later if it'll help find the problem).

BSD process name corresponding to current thread: init

Mac OS version:
Not yet set

Kernel version:
Darwin Kernel Version 10.8.0: Tue Jun 7 16:33:36 PM
System model name: MacBook4,1 (Mac-F22788A9)

System uptime in nanoseconds: 925358496
------------------------------------------------------------------

Then an overlay message hovers above it saying: "You need to restart your computer. Hold down the Power button until it turns off, then press the Power button again."

This happens each time I start up.

What I've tried doing:
Booting in safe mode by holding shift (doesn't work).
Restarting PRAM (3 chimes with PR key combo)
Holding command S to enter single user mode (keyboard nonresponsive to any commands).
I've booted from the CD and repaired the disk and verified permissions from Disk Utility, but that didn't help.


Please help me. If you need any more info, feel free to ask.
Thanks,
-Callum.

 

I ran Migration Assistant. It made a new user account which is annoying, and didn't copy over all my applications, just the ones that come with the OS (iTunes, iCal, etc). Everything else copied over fine (documents, music library/playlists etc). The Dock was full of question marks where my other apps should have been. I tried copying them over from the backup but that didn't work.

There is just one Time machine backup on an external hard drive. I feel like I need to run the Setup Assistant from the OS disk for everything to work well, but I'm scared it'll do the kernel panic thing again.

 

I clean installed, updated, then went back to the OS disk to run Setup Assistant. This lead to the kernel panic. I then had to clean install again, update, then ran migration Assistant, which lead to another user account/missing apps etc. When I did the original time machine backup I made sure there was nothing on the exception list.

I'm wondering maybe I'm not updating to recent enough. I ran the automatic update and I'm still on 10.5.8. It's very hard to download these updates for me since I have a 350mb daily data cap. What's the the most recent update at the moment, and can I just download the latest manual pack from Apple.com and it will contain all the updates up until that point? It'll take several days to get though